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Your Directors are pleased to present the Thirty–ninth annual report of your Corporation with the audited accounts for the year ended March 31, 2016.
In March 2016, your directors declared an interim dividend of Rs. 3 per equity share of Rs. 2 each compared to Rs. 2 per equity share of Rs. 2 each for the previous year. The interim dividend was paid in April 2016.
Your directors recommend payment of final dividend for the financial year ended March 31, 2016 of Rs. 14 per equity share of Rs. 2 each compared to Rs. 13 per equity share for the previous year.
The total dividend for the year is Rs. 17 per equity share as against Rs. 15 per equity share for the previous year. The dividend payout ratio for the year ended March 31, 2016 will be 44%.
Simultaneous Issue of Warrants and Non–Convertible Debentures on a QIP Basis
Pursuant to the approval of the shareholders of the Corporation at the 38th Annual General Meeting held on July 28, 2015, the Corporation raised Rs. 5,051 crore through the issuance of Warrants simultaneously with Non–Convertible Debentures to domestic Qualified Institutional Buyers on a Qualified Institutions Placement (QIP) basis, in accordance with the provisions of Chapter VIII of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
The Corporation issued and allotted 3.65 crore Warrants at an issue price of Rs. 14 per Warrant with a right exercisable by the Warrant holder to exchange each Warrant for one equity share of face value of Rs. 2 each of the Corporation at any time on or before October 5, 2018, at a Warrant exercise price of Rs. 1,475 per equity share, to be paid by the Warrant holder at the time of exchange of the Warrants.
Simultaneously, the Corporation issued and allotted 5,000 Secured Re d e e m a b l e N o n – C o nve r t i b l e Debentures (NCDs) of face value of Rs. 1 crore each due in March 2017, with a coupon of 1.43% per annum, payable annually for cash aggregating to Rs. 5,000 crore. The NCDs were rated by CRISIL and ICRA and were assigned the highest rating of ‘CRISIL AAA/Stable’ and ‘ICRA AAA/Stable’ respectively
The Warrants and NCDs are listed on the respective segments of the BSE Limited (BSE) and National Stock Exchange of India Limited (NSE). The maximum dilution that could take place in future, if all the Warrants are exchanged for equity shares of the Corporation at the Warrant Exercise Price would be up to 2.2% of the enhanced equity share capital of the Corporation.
The Government has given an impetus to the housing sector through various flagship schemes such as Housing for All by 2022, Smart Cities Mission and Atal Mission for Rejuvenation and Urban Transformation.
Given the acute shortage of housing, the demand for individual home loans continued to remain healthy during the year. Improved affordability due to rising incomes and enhanced fiscal benefits available on home loans have encouraged first–time buyers to avail of home loans.
Reflecting India’s demographic trends, the average age of HDFC’s home loan customer is 38 years. In line with increased job opportunities and growing entrepreneurship, the Corporation has seen a healthy demand from both, salaried and self–employed customers.
While most of the demand for home loans is from Tier 1, 2 and 3 cities, the Corporation has made successful in–roads in growing its rural housing portfolio.
Customising home loan products to fulfil the needs of customers remains a priority for the Corporation. To encourage home ownership amongst women, the Corporation launched a housing product for women called ‘Women Power’ during the year. The product is attractive owing to the differential interest rate which is exclusively for women customers. In an effort to further penetrate the home loan market, the Corporation has intensified its efforts to selectively tap into customers from the unorganised sector through its product called ‘HDFC Reach’. As different credit assessment techniques and skill sets are required for this segment, the Corporation is steadily building its expertise to cater to self–employed and employed customers in the unorganised sector.
Individual loan disbursements grew by 18% during the year. The average size of individual loans stood at Rs. 25 lac as against Rs. 23.3 lac in the previous year.
Sale of Loans
During the year, the Corporation, under the loan assignment route sold individual loans amounting to Rs. 12,773 crore to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank. As at March 31, 2016, total loans outstanding in respect of loans sold/ assigned stood at Rs. 32,307 crore. HDFC continues to service loans and is entitled to the residual interest on the loans sold. The residual interest on the outstanding individual loans sold/assigned is 1.20% per annum and is being accounted for over the life of the underlying loans and not on an upfront basis.
Loan pools which were rated by external rating agencies carry a rating indicating the highest degree of safety.
As at March 31, 2016, the loan book stood at Rs. 2,59,224 crore as against Rs. 2,28,181 crore in the previous year. Loans sold to HDFC Bank during the preceding twelve months was significantly higher at Rs. 12,773 crore as against Rs. 8,249 crore in the previous year. Further, the rate of amortisation in the year under review was higher than the previous year as a result of lower interest rates.
The growth in the individual loan book, after adding back loans sold in the preceding twelve months was 24% (16% net of loans). The non individual loan book grew at 9%. The growth in the total loan book after adding back loans sold was 19% (14% net of loans sold).
On an Assets under Management (AUM) basis, the growth in the individual loan book was 17% and the non–individual loan book was 9%. The growth in the total loan book on an AUM basis was 15%.
Of the total loans on an AUM basis, individual loans comprise 73%. During the year, on an AUM basis, 83% of the incremental growth in the loan book came from individual loans. Repayments
During the year under review, Rs. 79,718 crore was received by way of scheduled repayment of principal through monthly instalments as well as redemptions ahead of schedule, as compared to Rs. 66,422 crore received last year.
External Commercial Borrowings
External Commercial Borrowings During the year, the Corporation raised an external commercial borrowing (ECB) of USD 500 million in the form of a syndicated loan facility. The ECB was raised under the Low Cost Affordable Housing Scheme of the Reserve Bank of India (RBI). The proceeds have been utilised for financing prospective owners of low cost affordable housing units. As per the RBI norms, low cost affordable housing units have been defined as units where the property cost is up to Rs. 30 lac, the loan amount is capped at Rs. 25 lac and the carpet area does not exceed 60 square meters.
The ECB was for a tenor of 5 years and the foreign exchange risk on the principal has been hedged in accordance with the guidelines prescribed by the RBI.
During the year, the Corporation also refinanced an existing ECB of USD 300 million raised earlier under the same scheme.
The RBI has recently granted approval to the Corporation to raise a fresh ECB of USD 375 million under the Low Cost Affordable Housing Scheme. As of date, this facility is undrawn.
As at March 31, 2016, the C o r p o r a t i o n ’ s o u t s t a n d i n g subordinated debt stood at Rs. 5,975 crore. The debt is subordinated to present and future senior indebtedness of the Corporation and has been assigned the highest rating of ‘CRISIL AAA/Stable’ and ‘ICRA AAA/Stable’. The Corporation did not issue any subordinated debt during the year.
Based on the balance term to maturity, as at March 31, 2016, Rs. 5,100 crore of the book value of subordinated debt was considered as Tier II under the guidelines issued by the National Housing Bank (NHB) for the purpose of capital adequacy computation.
During the year, the Corporation issued non–convertible debentures (NCDs) amounting to Rs. 22,276 crore on a private placement basis (excluding NCDs raised through the QIP issue mentioned above). The Corporation’s NCD issues have been listed on the Wholesale Debt Market segment of the NSE and the BSE. The NCD issues have been assigned the highest rating of ‘CRISIL AAA/Stable’ and ‘ICRA AAA/ Stable’. As at March 31, 2016, NCDs and bonds outstanding stood at Rs. 84,143 crore. The Corporation has been regular in making payments of principal and interest on the NCDs. The Corporation is in compliance with the provisions of the Housing Finance Companies Issuance of Non– Convertible Debentures on Private Placement (NHB) Directions, 2014.
The Corporation’s short–term debt programme has been assigned the highest ratings of ‘CRISIL A1+’, ‘ICRA A1+’ and ‘CARE A1+’ by CRISIL, ICRA and CARE Ratings respectively. As at March 31, 2016, the outstanding issues of commercial paper aggregated to Rs. 25,726 crore
Term Loans from Banks, Institutions and Refinance from the National Housing Bank (NHB)
As at March 31, 2016, the total loans outstanding from banks, institutions and NHB amounted to Rs. 37,330 crore as compared to Rs. 24,282 crore as at March 31, 2015.
HDFC’s long–term and short–term bank loan facilities have been assigned the highest rating by CARE and ICRA, signifying highest safety for timely servicing of debt obligations. During the year, the Corporation has drawn NHB refinance amounting to Rs. 1,750 crore under the regular refinance scheme and refinance assistance for flood affected areas of Tamil Nadu.
Total deposits outstanding increased from Rs. 66,706 crore at the beginning of the financial year to Rs. 74,670 crore as at March 31, 2016. The number of deposit accounts stood at over 18 lac. For the twenty–first consecutive year, CRISIL and ICRA reaffirmed a rating of ‘CRISIL FAAA/Stable’ and ‘ICRA MAAA/Stable’ respectively, for HDFC’s deposits. These ratings represent the highest degree of safety regarding timely servicing of financial obligations and carries the lowest credit risk.
The support of the agents and their commitment to the Corporation has been instrumental in HDFC’s deposit products continuing to be a preferred investment for households and trusts. There has been no default in repayment of deposits or payment of interest during the year. All the deposits accepted by the Corporation are in compliance with the requirements of Chapter V of the Companies Act, 2013.
As of March 31, 2016, public deposits amounting to Rs. 528 crore had not been claimed by 43,254 depositors. Since then, 10,040 depositors have claimed or renewed deposits of Rs. 166 crore. Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits. Where the deposit remains unclaimed, reminder letters are sent to depositors periodically and follow up action is initiated through the concerned agent or branch.
Deposits remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the central government. Accordingly, during the year, an amount of Rs. 1.37 crore has been transferred to the IEPF.
Gross non–performing loans as at March 31, 2016 amounted to Rs. 1,833 crore. This is equivalent to 0.70% of the loan portfolio (as against 0.67% in the previous year). The non–performing loans of the individual portfolio stood at 0.51% while that of the non–individual portfolio stood at 1.12%.
As per NHB norms, the Corporation is required to carry a total provision of Rs. 1,959 crore of which Rs. 1,341 crore is against standard assets.
The balance in the provision for contingencies account as at March 31, 2016 stood at Rs. 2,695 crore of which Rs. 566 crore is on account of non–performing loans. This balance in the provision for contingencies is equivalent to 1.03% of the loan portfolio.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) has proved to be a useful recovery tool and the Corporation has been able to successfully initiate recovery action under this Act.
Additional One–Time Special Provision
During the year, the Corporation made an additional one–time special provision of Rs. 450 crore. This was done with the objective of further strengthening the Corporation’s balance sheet. The Corporation believes that it would be prudent to utilise a part of the exceptional gains (received from the sale of equity shares of HDFC Standard Life Insurance Company Limited) to build an additional buffer against any unexpected risk in the future.
This special provision is being done voluntarily and not on account of any regulatory requirement. Further, the provision is on standard assets. The Corporation holds adequate security in respect of all loans.
The Corporation has complied with the Housing Finance Companies (NHB) Directions, 2010 prescribed by NHB regarding deposit acceptance, accounting standards, prudential norms for asset classification, income recognition, provisioning, capital adequacy, credit rating, concentration of investments and capital market exposure norms.
During the year, NHB recalibrated risk weights on individual housing loans, based on the loan amount and loan to value ratio, with the lowest risk weight being reduced to 35% compared to 50% earlier.
Capital Adequacy Ratio
The Corporation’s capital adequacy ratio (CAR) stood at 16.6%, of which Tier I capital was 13.2% and Tier II capital was 3.4%. Deferred tax liability on Special Reserve and the investment in HDFC Bank has been considered as a deduction in the computation of Tier I and Tier II capital. As per regulatory norms, the minimum requirement for the capital adequacy ratio and Tier I capital is 12% and 6% respectively.
Marketing and Distribution
During the year, ef for ts were concentrated on further strengthening the distribution network. The Corporation’s distribution network now spans 401 outlets, which includes 116 offices of HDFC’s wholly owned distribution company, HDFC Sales Private Limited (HSPL).
To further augment the network, HDFC covers additional locations through its outreach programmes. HDFC has overseas offices in London, Singapore and Dubai. The Dubai office caters to customers across Middle East through its service associates based in Kuwait, Qatar, Oman, Abu Dhabi and Saudi Arabia. The Corporation’s distribution channels which include HSPL, HDFC Bank and third party direct selling associates (DSAs) play an important role in sourcing home loans. In value terms, HSPL, HDFC Bank and third party DSAs sourced 49%, 26% and 17% of home loans disbursed respectively during the year.
The Corporation has third–party distribution tie–ups with banks and other distribution companies including e–portals for retail loans. All distribution channels only source loans, while the control over the credit, legal and technical appraisal continues to rest with HDFC, there by ensuring that the quality of loans disbursed is not compromised in any way and is consistent across all distribution channels. Enhancing digital initiatives for the convenience of new and existing customers remains a key focus area. ‘HDFC’s Online Home Loans’ is an end–to–end origination to approval home loan platform. This platform enables customers to apply, upload documents and get a home loan approval online and seamlessly.
Property fairs across major cities in India were organised. In addition, thematic property fairs focusing on ready to occupy homes were held in Chennai, New Delhi and Hyderabad. To cater to the Indian diaspora, ‘India Homes’ fairs were held in London, Singapore, Muscat and Dubai where developers were invited by HDFC to show case their properties.
Value Added Services and Cross Selling
HDFC’s subsidiary companies have strong synergies with HDFC. This enables the Corporation to provide property related value added services and cross sell products and services under the ‘HDFC’ brand. HDFC Realty Limited is a real estate advisory company. It has a presence in 23 locations across India and helps individuals, government authorities and corporate institutions to buy, sell or lease real estate and also provides valuation services.
HDFCRED.com, is a digital information hub that assists potential home buyers in identifying properties and provides leads for potential home loan customers.
HDFC and HSPL are composite corporate agents for HDFC Standard Life Insurance Company Limited (HDFC Life) and HDFC ERGO General Insurance Company Limited (HDFC ERGO).
International Housing Finance Initiatives
HDFC’s expertise in housing finance is well regarded and therefore a number of existing and new housing finance companies are keen to tap the Corporation for training and technical assistance in housing finance.
The Frankfurt School of Finance & Management and HDFC jointly organised the eighth ‘Housing Finance Summer Academy’ in Germany. The course aims to provide housing finance solutions for emerging markets through a combination of academic knowledge and practical experience.
The Corporation remains committed to sharing its expertise in countries which have nascent mortgage markets. During the year, the Corporation conducted training programmes for housing finance players from Indonesia, Bangladesh and Sri Lanka. The Corporation also entered into an agreement with a leading Indonesian bank to provide training in housing finance.
Corporate Social Responsibility (CSR)
The Corporation contributed directly and through H T Parekh Foundation to identified social sectors such as education, health and sanitation, rural and urban development, child welfare, support to differently abled persons and environmental sustainability.
Further details on the prescribed CSR spend under Section 135 of the Companies Act, 2013 and the amount committed and disbursed during the year under review are provided in the Annual Report on CSR activities annexed to this report.
Human Resource Development
The Corporation remained focused on training and upgrading the work skills of its staff across the organisation. During the year, new recruits participated in an induction programme at the Centre for Housing Finance, which is the Corporation’s training centre in Lonavla. Other in–house training programmes are conducted at the Corporation’s training centre and through internally developed online training modules.
The key focus areas of training include regulations, customer service, appraisal techniques, fraud and risk mitigation and IT systems. In addition, staff members were nominated for a variety of external training programmes in India and overseas.
Awards and Recognitions
During the year, some of the awards and recognitions received by the Corporation included:
• Ranked amongst the world’s top ten consumer financial ser vices firms compiled by Forbes magazine. The Corporation was the only Indian company in the list.
• Awarded ‘Best Home Loan Provider of the Decade’ by CNBC Awaaz Real Estate Awards, 2015;
• Ranked amongst the top ten biggest brands in India by Interbrand, an international brand valuation firm;
• Awarded CIBIL Data Quality Award, 2016;
• Gold awards for creative c o m m u n i c a t i o n fo r t h e Corporation’s annual report and its wall calendar by the Association of Business Communicators of India.
In accordance with the provisions of Section 136 of the Companies Act, 2013, the annual report of the Corporation, the annual financial s t a te m e n t s a n d t h e r e l a te d documents of the Corporation’s subsidiary companies are placed on the website of the Corporation, www.hdfc.com.
Shareholders may download the annual financial statements and detailed information on subsidiary companies from the Corporation’s website or may write to the Corporation for the same. Further, the documents shall be available for inspection by the shareholders at the registered office of the Corporation. During the year, the following new subsidiary companies were incorporated:
HDFC Capital Advisors Limited: The company is a wholly owned subsidiary of the Corporation. The objective of the company is to provide financial advisory and related services in the area of real estate. H D F C I n te r n a t i o n a l L i fe a n d Re Company Limited (HDFC Re), Dubai: The Company was incorporated as a wholly owned subsidiary of HDFC Standard Life Insurance Company Limited, a subsidiary of the Corporation. The objective of the company is to offer reinsurance capacity to ceding insurers.
Further details of the subsidiary companies incorporated during the year are given elsewhere in this report.
The Corporation has not made any loans or advances in the nature of loans to any of its subsidiary or associate company or companies in which its directors are deemed to be interested, other than in the ordinary course of business.
The Corporation has obtained a certificate from its statutory auditors that it is in compliance with the provisions of Foreign Exchange Management Act, 1999 with respect to downstream investments made in/by its subsidiaries and in other companies during the year under review.
Review of Key Subsidiary and Associate Companies HDFC Bank Limited (HDFC Bank)
HDFC and HDFC Bank continue to maintain an arm’s length relationship in accordance with the regulatory framework. Both organisations, however, capitalise on the strong synergies through a system of referrals, special arrangements and cross selling in order to effectively provide a wide range of products and services under the ‘HDFC’ brand name.
As at March 31, 2016, advances of HDFC Bank stood at Rs. 4,64,594 crore – an increase of 27% over the previous year. Total deposits stood at Rs. 5,46,424 crore – an increase of 21%. As at March 31, 2016, HDFC Bank’s distribution network includes 4,520 branches and 12,000 ATMs in 2,587 locations.
For the year ended March 31, 2016, HDFC Bank reported a profit after tax of Rs. 12,296 crore as against Rs. 10,216 crore in the previous year, representing an increase of 20%. HDFC Bank has recommended a dividend of Rs. 9.50 per share of Rs. 2 each as against Rs. 8 per share for the previous year.
HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds 21.5% of the equity share capital of HDFC Bank.
HDFC Standard Life Insurance Company Limited (HDFC Life)
Gross premium income of HDFC Life for the year ended March 31, 2016 stood at Rs. 16,313 crore as compared to Rs. 14,830 crore in the previous year, reflecting a growth of 10%. The Company has a portfolio of 28 retail products and 8 group products covering saving, investment, protection and retirement needs of its customers, along with 7 optional rider benefits.
The Company has a wide reach with 398 HDFC Life offices and over 9,000 distributor touch–points. HDFC Life has also recently completed the incorporation of its wholly owned subsidiary, HDFC International Life and Re Company Limited in Dubai to offer re–insurance services. The Company ranked amongst the top three players in the private sector in the individual and group business category. The Company had a market share of 14.7% for individual business, amongst the private industry, in terms of weighted received premium.
HDFC Life has reported a standalone profit after tax of Rs. 818 crore for the year ended March 31, 2016 as against Rs. 786 crore in the previous year.
At the Company level, the pre overrun new business margin for the year ended March 31, 2016 stood at 23.6%. The new business margin based on actual expenses (post overruns) stood at 19.8%. As at March 31, 2016, the Market Consistent Embedded Value stood at Rs. 10,205 crore (previous year Rs. 8,805 crore).
During the year, HDFC Life paid an interim dividend of Rs. 0.90 per equity share of Rs. 10 each compared to Rs. 0.70 per equity share in the previous year. The solvency ratio of the Company was 198% as at March 31, 2016 as against the minimum regulatory requirement of 150%.
During the year, the Government increased the foreign direct investment limits in the insurance sector from 26% to 49%. In March 2016, pursuant to the receipt of requisite approvals, the Corporation sold 17,95,39,209 equity shares of Rs. 10 each, equivalent to 9% of its equity shares in HDFC Life to Standard Life (Mauritius Holdings) 2006 Limited at a price of Rs. 95 per equity share. The total consideration was Rs. 1,706 crore.
The profit on sale of this investment was Rs. 1,513 crore. As HDFC Life is an unlisted entity, the capital gains tax on the sale of shares was Rs. 300 crore. As a result of the sale of shares, the Corporation’s holding in HDFC Life is 61.6%.
The Board of Directors of HDFC Life has approved taking steps to initiate the process for an initial public offer (IPO). Accordingly, the Corporation has in–principle, agreed to sell up to 10% of its equity stake in HDFC Life through an offer–for–sale in the IPO of HDFC Life, subject to market conditions and the receipt of requisite approvals.
HDFC Asset Management Company Limited (HDFC–AMC)
As at March 31, 2016, HDFC–AMC managed 59 debt, equity, gold exchange traded fund and fund of fund schemes of HDFC Mutual Fund. The average assets under management for the month of March 2016 stood at Rs. 1,82,570 crore (which is inclusive of average assets under discretionary portfolio management/advisory services).
HDFC Mutual Fund has been ranked second in the industry on the basis of quarterly average assets under management for the year ended March 31, 2016 and had an overall market share of 12.9%. The number of investor accounts was in excess of 56 lac as at March 31, 2016. HDFCAMC has 129 investor service centres across the country.
For the year ended March 31, 2016, HDFC–AMC reported a profit after tax of Rs. 478 crore as against Rs. 416 crore in the previous year. HDFC holds 59.9% of the equity share capital of HDFC–AMC.
HDFC ERGO General Insurance Company Limited (HDFC ERGO)
HDFC ERGO continued to retain its market ranking as the fourth largest private sector player in the general insurance industry. The Company offers a complete range of insurance products like motor, health, travel, home and personal accident in the retail segment and customised products like property, marine, aviation and liability insurance in the corporate segment. The Company continues to leverage on the HDFC group’s distribution capability to drive its growth and on the technical capability of ERGO in the field of general insurance. The Company had a balanced portfolio mix with the retail segment accounting for 63% of the business.
The gross direct premium (excluding motor and declined risk pool) for the year ended March 31, 2016 stood at Rs. 3,380 crore as against Rs. 3,182 crore in the previous year. For the year ended March 31, 2016, the profit after tax stood at Rs. 151 crore as against Rs. 104 crore in the previous year – registering a growth of 45%.
During the year, HDFC ERGO paid an interim dividend of Rs. 1.25 per equity share of Rs. 10 each as against Rs. 0.75 per equity share in the previous year. The combined ratio as at March 31, 2016 stood at 105.6% (after motor and declined risk pool losses). The solvency ratio of the company was 167% as at March 31, 2016 as against the minimum regulatory requirement of 150%.
HDFC holds 73.6% of the equity share capital of HDFC ERGO.
HDFC Property Funds
HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC Property Fund, a registered venture capital fund with the Securities and Exchange Board of India (SEBI). HDFC Property Fund has two schemes –– the first scheme is HDFC India Real Estate Fund (HI–REF), which had an initial corpus of Rs. 1,000 crore. HI–REF has, as on date distributed the entire investment corpus and also profits to its investors. HI–REF is in the midst of concluding final exits from the balance portfolio. The second scheme, HDFC IT Corridor Fund has been fully exited.
HDFC Property Ventures Limited (HPVL) provides investment advisory services to Indian and overseas asset management companies (AMCs). Such AMCs in turn manage and advise Indian and offshore private equity funds.
HDFC holds 80.5% of the equity share capital of HVCL and 100% of the equity share capital of HPVL. The Corporation has sponsored two off shore funds –– HIREF International LLC and HIREF International Fund II Pte Ltd. HIREF International LLC was launched in 2007 and has a corpus of USD 800 million. Exits have commenced and the fund is in the process of exiting the balance investments. HIREF International Fund II Pte Ltd. had its second and final closing in April 2015 with a total corpus of USD 321 million.
HDFC Capital Advisors Limited is in the business of providing investment advisory services for real estate private equity financing. The company was incorporated in May 2015 and is a wholly owned subsidiary of the Corporation. The Company is the investment manager to HDFC Capital Affordable Real Estate Fund
1 (H–CARE 1) and is registered as an Alternative Investment Fund with SEBI. Against a target fund size of Rs. 5,000 crore, H–CARE 1 has received an initial commitment of Rs. 2,700 crore from global investors and is in the process of raising the balance amount. The primary objective of H–CARE 1 is to provide longterm longterm, equity oriented capital for the development of housing for middleincome households in India. The fund is a 12–year closed ended fund.
GRUH Finance Limited (GRUH)
GRUH is a housing finance company with a retail network of 179 offices spread across 10 states. As at March 31, 2016, the loan book stood at Rs. 11,115 crore compared to Rs. 8,926 crore in the previous year – an increase of 25%. The gross non–performing loans stood at 0.32% of the total loans outstanding and the net non–performing loans was 0.09%. The average size of loans disbursed during the year was Rs. 8.9 lac.
As at March 31, 2016, the capital adequacy ratio stood at 17.8%, of which Tier I capital was 16.1% and Tier II capital was 1.7%. For the year ended March 31, 2016, GRUH reported a profit after tax of Rs. 244 crore as compared to Rs. 204 crore – representing a growth of 20%. The board recommended payment of a dividend for the year ended March 31, 2016 of Rs. 2.30 per equity share of Rs. 2 each as against Rs. 2 per equity share in the previous year.
HDFC’s holding in GRUH currently stands at 58.6%.
HDFC Sales Private Limited (HSPL)
HDFC Sales Private Limited (HSPL) c o n t i n u e s to s t r e n g t h e n t h e Corporation’s marketing and sales efforts by providing a dedicated sales force to sell home loans and other financial products. HSPL has a presence in 116 locations. During the year under review, HSPL sourced loans accounting for 49% of individual loans disbursed by HDFC. HSPL is a wholly owned subsidiary of HDFC.
Credila Financial Services Private Limited (Credila)
Credila is India’s first dedicated education loan company, providing loans to students pursuing higher education in India and abroad. As on March 31, 2016, Credila had cumulatively disbursed Rs. 3,323 crore to 27,679 customers. The outstanding loan book stood at Rs. 2,402 crore, registering a growth of 42% over the previous year. The average loan amount disbursed was Rs. 17 lac. For the year ended March 31, 2016, Credila reported a profit after tax of Rs. 45 crore as against Rs. 28 crore in the previous year – representing a growth of 61%.
In addition to having its own offices and sourcing applications through the web, Credila capitalises on HDFC’s distribution network to source and market education loans. Credila’s borrowers are entitled to income tax exemption under Section 80E of the Income Tax Act, 1961.
HDFC holds 89.5% of the share holding in Credila on a fully diluted basis.
HDFC Education and Development Services Private Limited (HDFC Edu) HDFC Edu is the Corporation’s wholly owned subsidiary which focuses on the education sector.
The objective of the Corporation entering the education space was to imbibe best practices in education and facilitate innovation, thereby creating a visible impact on the schooling system in the country. Last year, the Corporation’s first school, ‘The HDFC School’ was inaugurated in Gurugram. The motto of the school is ‘Educate, Excel and Empower’. The school has started the primary wing. The construction of a new building on 5–acre plot owned by HDFC Edu has commenced during the year. Once the construction is completed, the school will shift to the new campus. The second HDFC School is being planned in Bengaluru.
The HDFC Schools are intended to be full–fledged K–12 schools, following the National Curriculum Framework, 2005 and will be affiliated with the Central Board of Secondary Education.
Particulars of Employees
HDFC had 2,196 employees as of March 31, 2016. During the year, 19 employees employed throughout the year were in receipt of remuneration of Rs. 60 lac or more per annum. In accordance with the provisions of Rule 5.2 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of such employees are set out in the annex to the Directors’ Report. In terms of the provisions of Section 136(1) of the Companies Act, 2013 read with the said rule, the Directors’ Report is being sent to all the shareholders of the Corporation excluding the annex. Any shareholder interested in obtaining a copy of the said annex may write to the Corporation.
Further disclosures on managerial remuneration are provided in Annex 1 appended to the Directors’ Report.
Prevention, Prohibition and Redressal of Sexual Harassment of Women at the Workplace
The Corporation has adopted a policy on prevention, prohibition and redressal of sexual harassment at the workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules there under. Members of the Internal Complaints Committee constituted by the Corporation are responsible for reporting and conducting inquiries pertaining to such complaints. During the year under review, no complaints were received by the committee.
Particulars of Loans, Guarantees or Investments
Since the Corporation is a housing finance company, the disclosures regarding particulars of the loans given, guarantee given and security provided is exempt under the provisions of Section 186(11) of the Companies Act, 2013.
As regards investments made by the Corporation, the details of the same are provided under notes 13 and 17 in the financial statements of the Corporation for the year ended March 31, 2016.
Particulars of Contracts or Arrangements with Related Parties
The particulars of contracts or arrangements with related parties referred to in Section 188(1), as prescribed in Form AOC–2 under Rule 8(2) of the Companies (Accounts) Rules, 2014, is annexed to this report. Details of related party transactions are given in the notes to the financial statements.
Particulars Regarding Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo
The particulars regarding foreign exchange earnings and expenditure appear under notes 25.1 and 26.3 in the financial statements. Since HDFC does not own any manufacturing facility, the other particulars relating to conservation of energy and technology absorption as stipulated in the Companies (Accounts) Rules, 2014, are not applicable.
Employees Stock Option Scheme (ESOS)
Presently, stock options granted to the employees operate under the following schemes; ESOS–07, ESOS–08, ESOS–11 and ESOS–14. There has been no material variation in the terms of the options granted under any of these schemes and all the schemes are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014. The disclosures as required under Regulation 14 of the said regulations have been placed on the website of the Corporation.
As at March 31, 2016, dividend amounting to Rs. 19.48 crore had not been claimed by shareholders of the Corporation. The Corporation has been periodically intimating the concerned shareholders, requesting them to encash their dividend before it becomes due for transfer to the IEPF. The Corporation continues to take various initiatives to reduce the quantum of unclaimed dividend. Unclaimed dividend amounting to Rs. 84 lacs for FY 2007–08 was transferred to the IEPF on September 8, 2015. Further, the unclaimed dividend in respect of FY 2008–09 must be claimed by shareholders by August 28, 2016, failing which it will be transferred to the IEPF within a period of 30 days from the said date.
Details on unclaimed shares are provided in the section on ‘Shareholders’ Information’ provided elsewhere in the annual report. Directors Dr. Ram S. Tarneja, director of the Corporation expired on August 7, 2015. The Board of Directors, while condoling the demise of Dr. Ram S. Tarneja placed on record its appreciation for the valuable guidance and services rendered by him during his association with the Corporation.
During the year under review, the Board of Directors at its meeting h e l d o n O c to b e r 2 6 , 2 015 , re–appointed Mr. Keki M. Mistry as the Managing Director of the Corporation (designated as the Vice Chairman & Chief Executive Officer) for a period of 3 years, with effect from November 14, 2015, subject to the approval of the members at the ensuing AGM. In accordance with the provisions of the Companies Act, 2013 and the Articles of Association of the Corporation, Mr. D. M. Sukthankar is liable to retire by rotation at the ensuing AGM. He is eligible for re–appointment.
The necessary resolutions for the re–appointment of Mr. Keki M. Mistry and Mr D. M. Sukthankar and their detailed profiles have been included in the notice convening the ensuing AGM. All the directors of the Corporation have confirmed that they are not disqualified from being appointed as directors in terms of Section 164(2) of the Companies Act, 2013. Dr. S. A. Dave is the Corporation’s nominee director on the board of HDFC Life. This is in accordance with the SEBI (Listing Obligations and Disclosure Requirements)
R e g u l a t i o n s , 2 01 5 ( L i s t i n g Regulations), which requires the Corporation to nominate at least one of its independent directors on the board of HDFC Life, which is a material unlisted Indian subsidiary company of the Corporation. The details on number of board/ committee meetings held are provided in the Report of the Directors on Corporate Governance, which forms part of this report.
At the 37th AGM held on July 21, 2014, the members had appointed Messrs Deloitte Haskins & Sells LLP, Chartered Accountants, having registration number 117366W/W– 100018 as the statutory auditors of the Corporation and branch auditors to audit the accounts at the Corporation’s branches in India and offices in London and Singapore, for a period of 3 years, to hold office as such until the conclusion of the 40th AGM, subject to them ratifying the said appointment at every AGM.
The Corporation has received a confirmation from Messrs Deloitte Haskins & Sells LLP to the effect that their appointment, if ratified, at the ensuing AGM would be in terms of Sections 139 and 141 of the Companies Act, 2013 and rules made there under. The board proposes to the members to ratify the said appointment of Messrs Deloitte Haskins & Sells LLP.
Messrs PKF, Chartered Accountants, having registration number 10 issued by the Ministry of Economy, United Arab Emirates (UAE) was also appointed for a period of 3 years to hold office as such until the conclusion of the 40th AGM, subject to the members ratifying the said appointment at every AGM. The board proposes to ratify the appointment of Messrs PKF.
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Per sonnel) Rules, 2014, the Corporation has appointed Messrs Vinod Kothari & Company, practising company secretaries in place of Messrs N. L. Bhatia & Associates to undertake the secretarial audit of the Corporation. The Secretarial Audit Report is annexed to this report.
Significant and Material Orders Passed by Regulators
During the year, no significant or material orders were passed by any regulators against the Corporation other than that disclosed separately in the notes of the financial statements and in the Report of the Directors on Corporate Governance.
Directors’ Responsibility Statement
In accordance with the provisions o f S e c t i o n 13 4 ( 3 ) ( c ) o f t h e Companies Act, 2013 and based on the information provided by the management, your directors state that:
a) In the preparation of annual accounts, the applicable accounting standards have been followed;
b) Accounting policies selected have been applied consistently.
Reasonable and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Corporation as at the end of March 31, 2016 and of the profit of the Corporation for the year ended on that date;
c) Proper and sufficient care has been taken for the maintenance of adequate a c c o u n t i n g r e c o r d s i n accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Corporation and for preventing and detecting frauds and other irregularities;
d) The annual accounts of the Corporation have been prepared on a going concern basis;
e) Internal controls have been laid down to be followed by the Corporation and such internal controls are adequate and operating effectively; and
f) Systems to ensure compliance with the provisions of all applicable laws are in place and were adequate and operating effectively.
Management Discussion and Analysis Report, Report of the Directors on Corporate Governance and Business Responsibility Report
In accordance with the Listing Regulations, the Management Discussion and Analysis Report and the Report of the Directors on Corporate Governance form part of this report.
In accordance with the Listing R e g u l a t i o n s , t h e B u s i n e s s Responsibility Report (BRR) has been prepared and placed on the Corporation’s website. Members who wish to receive a physical copy of the BRR are requested to write to the Corporation.
Internal Financial Control
The Corporation has put in place adequate policies and procedures to ensure that the system of internal financial control is commensurate with the size and nature of the Corporation’s business. These systems provide a reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Corporation, prevention and detection of frauds, accuracy and completeness of accounting records and ensuring compliance with corporate policies.
Extract of Annual Return – Form MGT–9
The details forming part of the extract of the Annual Return in Form MGT–9 is annexed to this report.
The Corporation acknowledges the role of all its key stakeholders – shareholders, borrowers, channel partners, depositors, key partners and lenders for their continued support to the Corporation.
The directors place on record their gratitude for the support of various regulatory authorities including NHB, RBI, SEBI, IRDA, MCA, Registrar of Companies, Financial Intelligence Unit (India), Foreign Investment Promotion Board, the stock exchanges and the depositories.
While recognising the challenging work environment, your Directors place on record their appreciation for the hard work and dedication of all the employees of the Corporation.
On behalf of the Board of Directors
DEEPAK S. PAREKH
Date : May 2, 2016
Place : MUMBAI